Do No Harm: 14 Attempts: 3. Taxes paid for a given income level Gilberto is gett
ID: 2510093 • Letter: D
Question
Do No Harm: 14 Attempts: 3. Taxes paid for a given income level Gilberto is getting ready to do his taxes. He is single and lives in Philadelphia. Gilberto earned $250,000 in taxable income in 2015. He reviews the following table, which shows the IRS tax rates for a single taxpayer in 2015. On Annual Taxable Income... Up to $9,225 From $9,225 to $37,450 From $37,450 to $90,750 From $90,750 to $189,300 From $189,300 to $411,500 From $411,500 to $413,200 Over $413,200 The Tax Rate Is... (Percent) 10.0 15.0 25.0 28.0 33.0 35.0 39.6 Based on the IRS table, Gilberto calculates that his marginal tax rate iswhen his annual taxable income is $250,000. 0 Type here to searchExplanation / Answer
When Gilberto earns $250,000 his income falls between $189,300 and $411,500.In this bracket marginal tax rate is 33%. Therefore, based on the IRS table, Gilberto calculates that his marginal tax rate is 33% when his taxable income is $250,000.
Calculation of Income taxes of Gilberto for 2015
On Ist $9,225 10% = $9,225*10% = $922.50
On next $28,225 ($37,450-$9,225) 15% = $28,225*15% = $4,233.75
On next $53,300 ($90,750-$37,450) 25% = $53,300*25% = $13,325
On next $98,550 ($189,300-$90,750) 28% = $98,550*28% = $27,594
On next $60,700 ($250,000-$189,300) 33% = $60,700*33% = $20,031
Income Taxes for 2015 = $922.50+$4,233.75+$13,325+$27,594+$20,031 = $66,106.25 or $66,106
Average Tax Rate = $66,106/$250,000 = 26.44%
Gilberto owes $66,106 in income taxes for 2015 and his average tax rate is 26.44% based on annual income level and the amount of taxes he owes for 2015.
The maximum amount he is willing to pay will be equal to saving in tax due to income sheltered. If he shelters his income by $4,000, then his taxable income will be $246,000 ($250,000-$4,000) and income taxes saved on sheltered income of $4,000 is $1,320 ($4,000*33%).
Therefore the maximum amount that Gilberto is willing to pay to learn this strategy and reduce his taxable income by $4,000 is $1,320.
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